Bill Gross: Major China Bubble Emerging

The investment guru who runs the world’s biggest bond fund at Pimco, Bill Gross, says a speculative bubble is emerging in China.

Real economic growth there is still constrained by limited consumer demand from the United States and other trading partners

Gross told Bloomberg News that the Chinese will have “a bubble of their own” to confront shortly.

“It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.”

Constrained growth potential in the United States will be the “new normal” for a while, Gross contends.

“With U.S. unemployment in the double digits and likely to stay close to that for the next six months despite job creation ahead, the Fed has nowhere to go,” Gross says.

China’s trade surplus with the United States nearly doubled in October from the previous month to $24 billion, figures from the Customs Bureau show.

The Shanghai Composite Index of shares has returned 84 percent so far this year. The index is valued at 35 times reported earnings, more than doubling in a year.

This is unsustainable, notes Gross.

The “systemic risk” of another asset bubble is rising, in part because the Federal Reserve has kept interest rates at record lows.

What’s more, there are other, potentially difficult developments.

“China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland,” Gross adds.

Bloomberg News also reports that China's government has encouraged a $1.3 trillion credit boom this year to complement its monetary and fiscal stimulus, which is raising concern internationally about future economic instability there.

The Organization for Economic Cooperation and Development (OECD) also is raising red flags about the burgeoning Chinese bubble.

The investment guru who runs the world’s biggest bond fund at Pimco, Bill Gross, says a speculative bubble is emerging in China. Real economic growth there is still constrained by limited consumer demand from the United States and other trading partnersGross told Bloomberg...